DESCRIPTION OF TAX BILLS
TAX FOR OIL SPILL LIABILITY TRUST FUND (S. 1066) AND
DEDUCTION FOR OIL SPILL CLEANUP COSTS (S. 771)
Scheduled for a Hearing
SENATE COMMITTEE ON FINANCE
on June 21, 1989
Prepared by the Staff
JOINT COMMITTEE ON TAXATION
June 19, 1989
The Senate Committee on Finance has scheduled a public
hearing on June 21, 1989, on bills relating to (1) the
petroleum tax for the Oil Spill Liability Trust Fund (S.
1066, introduced by Senator Chafee); and (2) the
deductibility of oil spill cleanup costs (S. 771, introduced
by Senator Reid).
This document, •'■ prepared by the staff of the Joint
Committee on Taxation, provides a description of present law
and of the bills.
■"■ This document may be cited as follows: Joint Committee on
Taxation, Description of Tax Bills Relating to Tax for Oil
Spill Liability Trust Fund (S. 1066) and Deduction for Oil
Spill Cleanup Costs (S. 771) (JCX-24-89), June 19, 1989.
Tax for Oil Spill Liability Trust Fund (S. 1066);
Deduction for Oil Spill Cleanup Costs (S. 771)
Oil Spill Liability Trust Fund petroleum tax
Present law (Code sec. 4611) establishes an excise tax
of 1.3 cents per barrel on domestic crude oil and imported
petroleum products (including imported crude oil) for the
purpose of funding the Oil Spill Liability Trust Fund.
However, the tax will not be imposed until qualified
authorizing legislation^ is enacted. Although the tax itself
was enacted in 1986, qualified authorizing legislation has
never been enacted. Consequently, this tax has never been
collected. This tax expires on December 31, 1991.
The tax on domestic crude oil would be imposed on the
operator of any United States refinery receiving such crude
oil, while the tax on imported petroleum products would be
imposed on the person entering the product into the United
States for consumption, use, or warehousing. If domestic
crude oil is used in, or exported from, the United States
before imposition of the petroleum tax, the tax would be
imposed on the user or exporter of the oil. The tax base
would be the same as for the Superfund excise tax on crude
oil and imported petroleum.
Trust fund expenditure purposes would include payment of
removal costs of an oil spill and certain otherwise
uncompensated claims. In addition, funds would be available
to carry out specific provisions of other legislation
relating to oil discharges and pollution. Trust fund amounts
also would be available to pay all Federal Government
administrative costs and contributions to the International
Fund under the Comprehensive Oil Pollution Liability and
The Oil Spill Liability Trust Fund excise tax is
scheduled to expire on December 31, 1991. The tax will
terminate earlier than that date if the Secretary of the
Treasury estimates that $300 million or more will be credited
to the Oil Spill Liability Trust Fund before January 1, 1992.
The Code requires that the authorizing legislation be
substantially identical to subtitle E of title VI, or
subtitle D of title VIII, of H.R. 5300 of the 99th Congress
as passed the House of Representatives.
Treatment of costs incurred in connection with the cleanup of
oil and hazardous substances
Present law permits taxpayers to deduct the ordinary and
necessary expenses of carrying on a trade or business. Thus,
taxpayers who must clean up oil or hazardous substances may
generally deduct the expenses of the cleanup. Present law
does not require that the cleanup be done in accordance with
the requirements of Federal environmental laws for the
expenses to be deductible.
Present law does restrict taxpayers' ability to deduct
certain specific types of payments. These restrictions were
enacted because the expenditures are considered to violate
public policy. For example, no deduction is permitted with
respect to illegal bribes, kickbacks, fines, penalties, or
treble damage payments under the antitrust laws. Thus, a
fine or penalty imposed by a governmental unit because of the
discharge of oil or hazardous substances is not deductible
under present law.
Description of the Bills
S. 1066 (Senator Chafee) :^ Comprehensive Oil Pollution
Liability and Compensation Act of 1989
The bill would establish a domestic liability and
compensation system for oil pollution from vessels and
facilities (Title I of the bill). The bill also provides for
the implementation of certain international conventions
relating to oil pollution (Title III of the bill).
Section 207 of the bill contains the tax-related
provisions. The bill provides that collection of the Oil
Spill Liability Trust Fund tax would commence with the first
calendar month beginning more than 30 days after enactment of
the bill. The bill would also amend the present-law Oil
Spill Liability Trust Fund tax by extending the expiration
date of the tax from December 31, 1991, to June 30, 1994. As
under present law, the tax would terminate earlier than that
date if the Secretary of the Treasury determines that the
amount of taxes to be collected would exceed $300 million.
The bill would modify the limitations on expenditures
from the Oil Spill Liability Trust Fund to permit the
President to waive the present-law expenditure limit of $500
million per incident. The bill also would remove the
present-law expenditure limit of $250 million on payments for
natural resource damages. Finally, the bill would provide
that the Trust Fund may only be used as authorized under the
Effective date . --Imposition of the tax would commence on
the first day of the first month beginning more than 30 days
after the date of enactment.
S. 771 (Senator Reid) : Oilspill Bill
In general, the bill would deny a deduction for expenses
incurred by a taxpayer which result from the cleanup of oil
or hazardous substances discharged by that person. In
addition to the direct costs of cleanup, non-deductible
expenses would include legal fees resulting from the
discharge of oil or a hazardous substance; payments or
restitution related to discharge of oil or a hazardous
substance; and any costs required by Federal law or
This bill was introduced at the request of the
The disallowance of these expenses would not apply in
cases in which either the Administrator of the Environmental
Protection Agency or the Commandant of the Coast Guard
(whoever is appropriate) certifies that the taxpayer made a
good faith effort to comply with applicable Federal laws and
regulations relating to the clean up of the oil or hazardous
substances. In addition, the disallowance of these expenses
would not apply in specified circumstances that are beyond
the control of the taxpayer.
The taxpayer would be required to itemize separately the
cleanup expenses. The Secretary of the Treasury is to
estimate the revenue gained by the disallowance of the
expenses. The Secretary is required to transfer from the
general fund to a separate account an amount equal to this
revenue gain. These amounts may be expended only in
relationship to the cleanup of oil or hazardous substances.
The bill would require the Secretary to submit to the
House Committee on Ways and Means and to the Senate Committee
on Finance an estimate of the loss in revenues to the Federal
Treasury which occurred between January 1, 1970 and December
31, 1988 by reason of permitting cleanup costs to be deducted
from gross income. This report would be required to be
furnished not later than six months after the date of
enactment. After submitting this report, the Secretary would
be required to submit an annual report detailing the amount
accruing to the Treasury as a result of the bill and the
amount expended for environmental cleanup.
Effective date . — The bill would be effective for all
discharges occurring after March 23, 1989, in taxable years
ending after that date.